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Hungarian report Hungarian report
by Euro Reporter
2011-09-29 07:24:31
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EU urged to probe Hungary mortgage move

Foreign banks and governments are warning that Hungarian moves to help holders of Swiss franc mortgages amount to “expropriation” that could damage the country’s banking system and economy. Austrian- and Italian-owned banks that are big lenders across central Europe have urged Brussels to investigate what they claim is a breach of European Union rules that could set a dangerous precedent if allowed to stand.  Hungary’s parliament last week passed a law allowing mortgage borrowers in Swiss francs and Euros to repay their loans by the year-end at exchange rates about 25 per cent below current market rates. Losses would be borne by the banks, including Hungary’s OTP and foreign lenders such as Erste Bank and Raiffeisen Bank International of Austria, and Bank Austria, a unit of Italy’s UniCredit.

Two-thirds of Hungarian mortgages are in Swiss francs – taken out to take advantage of low interest rates, mostly when the Swiss currency was weaker. The franc’s sharp gains against Hungary’s forint have left many borrowers struggling to make repayments. But the plan to ease the burden on borrowers has caused the most serious clash to date between foreign businesses and the unorthodox economic policies of the government of Viktor Orban. Investors had already been unsettled last year by the largest banking levy in the EU, and retroactive “crisis” taxes imposed on the telecoms, energy and retail sectors. “This early repayment act is clearly an interference with private contracts, to a certain extent it is changing property rights,” said Josef Christl, former executive director of the Austrian central bank and now a banking consultant. “There is a general feeling that Hungary is not going in line with the European environment it operates in.”

Maria Fekter, Austria’s finance minister, wrote last week to Gyorgy Matolcsy, Hungary’s economy minister, that “forcing market participants to take enormous losses on their books through legally decreed prices and exchange rates is not acceptable practice in a market economy”. Zoltan Kovacs, minister of state for government communication, told the Financial Times that the size and severity of the problem justified the measures taken. He also said that “in our perception” the law was not against EU rules. “The banks made Swiss franc loans to very risky population groups,” he said. “We consider the practices of the banks, especially in the last couple of years, as unethical.” He suggested there had been elements of mis-selling of loans to customers who did not understand the risks.

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Government’s debt manager plans limited-size net forint issuance in Q4


Hungary's Government Debt Management Agency (ÁKK) plans net forint issuance of a limited HUF 76bn in October-December, with net issues in bonds and twelve-month discount T-bills and net repayments in 3-month bills, ÁKK's latest three-month forint issue plan shows. The national economy ministry's latest forecast implies a HUF 104bn forint financing needs for the last quarter, thus ÁKK will likely also draw on the state treasury unified account KESZ during the period. The debt manager planned net repayments of HUF 175bn for September-November, most of it in discount T-bills. Gross issues will come to HUF 1,042bn and gross repayments to HUF 1,118bn in the last quarter of the year.

Bond issues, including the HUF 30bn of bonds to be issued at the four exchange auctions planned during the period, will total HUF 390bn. There will be just one big bond expiry, of HUF 282bn of 2011/B bonds on October 12, and two minor expiries, worth a combined HUF 2.2bn, on December 30. Including HUF 40bn in early buybacks at four reverse auctions and HUF 30bn changed at the exchange auctions, gross expiries will total HUF 354bn in October-December. Besides seven biweekly bond auctions, ÁKK will also offer floating-rate bonds parallel with 12-month discount T-bill auctions on October 27 and December 8. The next floating-rate bond auction will take place on September 29.

The longest, 15-year fixed-rate bond is scheduled to be auctioned twice, on October 20 and on December 15. ÁKK plans to cut the per auction offer of three-month discount T-bills to HUF 30bn, the combined HUF 390bn offer for the 13 auctions in the period suggests. The auction offer was cut from HUF 50bn to HUF 30bn yet for the next, September 27 auction, at which the first three-month bill expiring next year will be on offer. Three-month discount T-bills issues will be HUF 192bn below the HUF 583bn of expiries during the period. ÁKK will cut the per auction offer at the biweekly twelve-month discount T-bill auctions to HUF 40bn from HUF 50bn offered so far this year as it plans to sell a combined HUF 240bn of the bills at the six auctions in the period. The new reduced offer applies already to the last auction of the bills in September, on the 29th. There will be just one big twelve-month discount T-bill expiry, of HUF 160bn on November 16.

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No plan to help municipalities with CHF loans


The Hungarian government is not considering helping out municipalities that hold foreign-currency denominated debt in the same that way it has moved to support residential borrowers caught out by a falling forint, said the country's president said Friday. Before the recent crisis, borrowers in Hungary had taken out loans, including mortgages, in low-interest-rate Swiss francs, counting on a lack of volatility. But they are now faced with the prospect of having to pay higher rates because of the Swiss franc's strong gains over the past two years. Around two-thirds of Hungarian mortgage loans are Swiss franc-based. Their monthly instalments rise when the franc climbs. The government is working to allow early repayment of such foreign currency denominated mortgages at a fixed exchange rate of 180 forints per Swiss franc for franc-based loans, below market rates.

Municipalities are on their own, though. "There is no plan to help the municipalities," said Pal Schmitt, president of Hungary in an interview with Dow Jones Newswires and The Wall Street Journal on Friday. "We have enough problems at the national level." To help bring down its debt, the country has worked into a new constitution that's scheduled to go into effect on Jan. 1, 2012, that no government can leave behind higher debt than when it took over. But the main target of the new constitution is to reconstruct the economy and create jobs, Schmitt said. "The government intends to create 1 million new jobs in the next 10 years," Schmitt said, pointing out that a large number of its public sector employees like firemen and policemen retire after just 20 to 25 years of work and get pensions. "Many of them have retired for no special reason," he said, noting they are healthy individuals.

Under pending legislation, the government intends to tax such pensions at a rate of 16%, he said. "The government has to pay them but now it will be paid as a salary. This is one way of creating jobs and revitalizing the economy." Some of these individuals would get their old jobs back; others would have to get new ones. Regardless, they would have to pay a tax on their pension. The measures are likely to be unpopular and it is not entirely clear how they will be implemented but Schmitt said they are necessary. "The whole issue is not easy at all," Schmitt said. "But we want to solve our problems ourselves." The small business sector, which employs about 70% of the population, will also be given support to create new jobs, he said. Those living off welfare programs will have to work before they get any state aid. The country is also eager to support multinational corporations if they create jobs in Hungary, he said.



      
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